Regulators Fail to Take Conflict Out of Conflict Minerals

LONDON -- The conflicts surrounding the use of conflict minerals continue, as barely half of the publicly quoted US companies required to file their first conflict minerals (CM) reports did so by the June 2 deadline. Those that did file only managed to offer minimal transparency as to whether any tin, tungsten, tantalum, or gold used in their products was sourced from the Democratic Republic of Congo (DRC) or neighboring war-torn countries.

Conflict mineral source area.

The requirement to file such reports originated in the 2010 Dodd-Frank Act. While it is hitting many industrial sectors -- from aerospace, automotive, and drilling gear to jewelry and even clothing -- there is little doubt the responsibility for conforming has fallen hardest on the electronics industry, since all four metals (and in the case of the three Ts, their ores) are widely used in a variety of electronics gear. In the case of tantalum, it is even an enabling technology, since it is the core material for making capacitors.

The well-intentioned rule was devised to starve militia in the DRC and some other central African countries of revenues by discouraging companies, mainly smelters, from dealing with them. For the moment, and because earlier this year the Appellate Court struck down part of the rule, section 1502 in the wide-ranging Dodd-Frank legislation does not force companies to cease the use of these conflict minerals. For the first two years at least, the SEC has allowed companies to report products as "DRC conflict-free indeterminate."

However, businesses must still prove to the SEC that they have performed due diligence to ascertain the provenance of any conflict minerals, either by auditing their suppliers, or by hiring an accredited third party to do so. The result has been major consternation within boardrooms and purchasing departments, as well as a generally unwanted spotlight on companies’ global supply chains.

Perhaps the cost of identifying and obtaining conflict-free materials could be eased through partnerships. A few companies are already leaders in compliance. If other companies partner with them for certification and procurement of these resources, the compliance costs can be shared and the need to "reinvent the wheel" is eliminated. There are enough companies in this effort already that we don't need to worry about a monopoly developing - and the new conflict-free materials supply-line might make a nice side business. There would also be economies of scale with larger purchase volumes being purchased.

"For the moment, and because earlier this year the Appellate Court struck down part of the rule, section 1502 in the wide-ranging Dodd-Frank legislation does not force companies to cease the use of these conflict minerals"

For starters, as all tin, tantalum, tungsten and gold are defined by Dodd-Frank to be conflict minerals, regardless of origin, Dodd-Frank does not, nor will it, "force companies to cese the use of these conflict minerals." It would be quite an engineering feet to manufacture electronics without tin, tantalum, tungsten and gold.

Second, assuming the author meant to refer to conflict minerals associated with conflict mines, the act does not forbid the use of these either as that was determined to be a likely WTO violation. Dodd-Frank, intended as a "name and shame," provision, requires only that companies report on the sourcing of their minerals with the hope that they will be shamed into avoiding doing business with conflict mines and others promoting violence.